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Tokyo Market Still Shaking, But Expected to Bounce Back With AM-Japan-Scandal, Bjt; Graphic

July 9, 1991

TOKYO (AP) _ Japan’s fragile stock market could continue to suffer aftershocks from the recent brokerage house scandal until investors decide the worst is over, analysts say.

Tuesday’s session was typical of the jittery state of the market. The Nikkei Stock Average, the key market barometer, surged 432.79 points, or 1.95 percent, to close at 22,608.96 after a volatile session in which the index was down nearly 2 percent at one point.

On Monday, the Nikkei skidded 3.15 percent, capping five straight trading days of losses that pulled the average down 8.02 percent to a seven-month low. Analysts said the market temporarily bottomed out Tuesday, one day after the government announced a crackdown on major brokerages for compensating rich clients for investment losses and for financial dealings with gangsters.

But that may not mark the end of the scandal’s impact on trading because investor confidence has yet to return. Smaller players are enraged at the preferential treatment for rich clients and have pulled money out of the market in protest.

″Investors are not convinced the scandal is over - who knows what other skeletons may be found?″ said Adrian E. Tschoegl, chief economist at SBCI Securities (Asia).

Tuesday’s rebound was ″potentially positive ... but it’s a little early,″ said Craig Chudler, a strategist at UBS Phillips and Drew International.

Chudler noted the market is still reverberating from an interest rate cut July 1, when the Bank of Japan reduced the rate it charges on loans to commercial banks by half a percentage point to 5.5 percent. Interest rate changes often accentuate market volatility, he said.

Tschoegl said many investors were staying out of the market, fearing a panic that could pull prices much lower. Investor wariness makes predicting a market turnaround tricky, he said.

But he believed the longer-term outlook was brighter because real economic factors such as corporate earnings and interest rates point to an eventual improvement.

″The question is which is stronger - greed or fear?″ Tschoegl said. ″Eventually, greed will become stronger, but right now there’s nothing positive to get excited about.″

The government restricted business activities by the four big brokerages for four days. That was expected to have a limited effect on stock prices because the companies can still conduct some corporate and institutional business.

Those brokerages, which usually handle about one-third of all trading on the Tokyo market, can still handle individual customers’ orders as well as corporate client requests to adjust their open positions, especially in options, futures and short sales of securities.

″There’s no problem, largely because it lasts only four days and investors can still settle their futures and options positions,″ said Tsuneo Fujii, a manager at Yasuda Mutual Life Insurance Co.’s funds management division.

The Finance Ministry also ordered an end to compensation to large clients for their losses.

The brokerages - Nomura, Nikko, Daiwa and Yamaichi Securities - acknowledged Tuesday they reimbursed favored clients nearly $863 million, far more than had previously been reported.

In the long run, eliminating those accounts may give the market a needed boost.

But most analysts say the market still hasn’t weathered the storm and that further scandal-related disclosures could pull prices lower before they recover.

″It’s not going to climb in a hurry. It will bounce for a while,″ said Kenneth S. Courtis, strategist at Deutsche Bank Capital Markets in Tokyo.

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